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U. S. DEPARTMENT OF LABOR 

INFORMATION AND EDUCATION SERVICE 
Division of Public Works and Construction Developments 



PRICES DURING THE WAR 

AND THE 

READJUSTMENT PERIOD 



^ 



AN ADDRESS by T. S: HOLDEN 

Investigator, Economics Section, Division of Public Works and Construction 
Developments, U. S. Department of Labor 

Before the American Institute of Architects 

(New York Chapter) 

Wednesday, April 9, 1919 



^-3^ 




WASHINGTON 

GOVERNMENT PRINTING OFFICE 

1919 



D. tf 1. 

APR 2i 19|g 



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PRICES DURING THE WAR AND THE READJUSTMENT 

PERIOD. 



A study of the index figures of commodity prices in tlie United 
States and certain foreign countries shows that while x^rices have 
risen very considerably in this country through the war period, the 
rise in other countries has been greater. According to the figures 
of the Bureau of Labor Statistics, the wholesale prices of all com- 
modities in September, 1918, were 107 per cent over the average for 
the year 1913. This was the highest figure reached in this country. 
The price level in Canada, according to the Canadian Labor Depart- 
ment, reached the high point in November — the price level then 
being 115 per cent over the 1913 figure. According to the figures of 
the London Economist, the price level in the United Kingdom was 
highest in the month of August, being at that time 133 per cent above 
the 1913 average. Figures on the increase of prices in France are not 
available for any time later than June, 1918; however, the index 
figure as published by the Statistique Generale for the month of May 
showed an increase of 235 per cent over the 1913 price level. Not 
only do the countries nearer the scene of actual warfare show greater 
rises in the price level, but it is also true that in these countries the 
price began to rise at an earlier date than they did in the United 
States. 

A comparison of the rise in the price level in these countries is 
shown graphically in chart No. 1. 

The general rise in commodity prices was accompanied in all 
these countries by a considerable increase in the amount of money 
in circulation and in the amount of bank deposits. In this country 
the average amount of money in circulation per capita in the year 
1913 was $34.65. This increased to $56.23, the figure for December 
1, 1918, an increase of 62 per cent. There has been a slight decrease 
since that time, the figure for March 1 being $53.76, which is 55 per 
cent above the 1913 figure. During the same time bank deposits in 
the United States have increased almost threefold. In European 
countries, during the war period, bank deposits more than doubled. 

Prof. Irving Fisher, of Yale University, published about a month 
ago a monograph entitled '' The New Price Kevolution," in which 

114285°— 19 3 



4 PRICES DURING THE WAR AND THE READJUSTMENT PERIOD. 

the facts concerning the increase of the amount of money and of 
credits were brought out, and the statement was put forward that 
this increase was responsible for the general rise in the price level. 
Prof, Fisher also pointed out that it is extremely unlikely that there 
will be a decrease of money and credits in either this country or 
European countries within the next few years, and that the price 
level will remain permanently high as compared Avith the prewar 
level. 

A comparison of the course of prices during the Civil War and 
the present war shows many points of similarity during the two war 
periods. The course of prices during the present period of readjust- 
ment and the corresponding period following the Civil War show 
more points of difference than of similarity. 

During both wars the wholesale prices of commodities in general 
rose steadilj^ through the war period. The rise during the Civil 
War period, taking the year 1860 as the base, runs up to a somewhat 
higher level than the rise during the present war. In both wars 
building materials rose in price, but they did not at either time reach 
levels as high as the price levels of other commodities. 

At the beginning of the year 1865, the end of the Civil War being 
in sight, wholesale prices broke suddenly and violently. During the 
first six months of the j^ear prices in general fell off 27 per cent from 
the high level of January. However, the break in wholesale prices, 
though unprecedented in violence and accompanied by the unsettling 
influence of the end of the great war, produced no business crisis or 
depression. Through the latter half of 1865 prices recovered from 
the low point until in January, 1866, they stood just 16 per cent 
below the level of January, 1865. From the beginning of 1866 prices 
dropped slowly downward. Thej did not reach the preAvar level 
until the year 1878. As is well known, during that period of inflated 
currency gold was at a premium. However, commodity prices re- 
mained above the prices of gold up to and including the year 1877. 

Building materials declined in price along with other commodities 
during the first half of the year 1865. However, the fall was less 
than in the case of other commodities. Whereas commodities in 
general dropped 27 per cent, building materials dropped only 14|' 
per cent. The recovery during the second half of the year was more 
marked, prices of building materials returning to the level of the 
last quarter of the year 1864, and remaining at that level for a period 
of a year before the decline set in. The index figure for the building 
materials group remained higher than that for all commodities up 
to and including the year 1874. 

The currency was on a distinctly unsound basis in the Civil War 
reconstruction period. The sharp fluctuations in prices gave rise to 



PRICES DTJRIl^G THE WAR AND THE READJUSTMENT PERIOD. 5 

much speculation and the opportunities for development of the re- 
sources of the country, such as unused land, rivers and harbors, build- 
ing of railroads, led to overexpansion of business resulting in the 
financial panic of 1873. This panic was not accompanied by any 
sharp decline in prices. 

As was stated above, it was 13 years after the Civil War before 
prices returned to the pre-war level. The principal cause of the re- 
turn to the pre-war level was the fact that there was such abundant 
opportunity for the development of new and more economic methods 
of production in the shape of new forms of machinery and new kinds 
of business organizations. These opportunities we do not have at 
the present day in any measure comparable with the previous period. 

A study has been made of the course of commodity prices during 
the present period of readjustment, the study being based on the 
quotations of wholesale prices of 313 commodities which are published 
weekly in Dun's Eeview. The results of this study are indicated 
graphically on chart No. 2. In figure 1 the abscissae of the single- 
line curve represent the numbers of advancing prices noted from week 
to week, while the absciss£e of the triple-line curve represent the num- 
bers of declining prices from week to Aveek. Figure 2 indicates the 
changes in Dun's index number for all commodities from month to 
month. The small arrow halfway up on figure 2 indicates the aver- 
age index for the year 1913. 

Dun's index number stood at its highest level on October 1. Since 
this number is based on prices for the previous month, it is thus in 
agreement with the Bureau of Labor Statistics' figure, which shows 
the high level for the month of September. From October 1 to the 
present time the price level has been declining. At first weekly quo- 
tations showed more advances than declines, although the price level 
fell by a small amount. From November 30 until March 22 there 
were each week more declines than advances. February 1 showed 59 
declines and 9 advances, this being the smallest number of advances 
noted during that period and at the same time the largest number 
of declines. The month of January showed the greatest decline in 
the price level of any month, about 4^ per cent. The excess in num- 
ber of commodities showing declines over the commodities showing 
advances has steadily decreased since February 1, until on March 22 
the report shows 26 advances and 26 declines. March 29 figures show 
20 advances and 54 declines. Of these 54 commodities showing de- 
clines, 21 were on steel products, the declines announced being the 
result of action of the steel committee in conference Avith the In- 
dustrial Board of the Department of Commerce. Previous declines 
in steel at the beginning of the year had not brought the prices of 
these products low enough to stimulate business, as they were still 
considerably above the general price level of other commodities. The 



6 PRICES DURING THE WAR AND THE READJUSTMENT PERIOD. 

April 5 number of Dun's Review shows 34 advances against 29 
declines. 

Thus it is seen that through the period from October 1, 1918, to 
the present time connnodity prices have been going tlii-ough an 
orderly process of readjustment. Although there have been many 
declining prices, at the same time there have been others advancing. 
On March 1 Dun's index figure showed a decline of 6.9 per cent from 
the high point of October 1. During the month of March, in spite 
of the considerable declines in steel, there were sufficient advances 
in other commodities, mainly foodstuffs, to cause a slight advance in 
the price level. The index for April 1 shows the price level only 5.7 
per cent below the high point of October 1. 

The London Economist's index figures show that from September 
1, 1918 (the highest level reached), to March 1, 1919, the price level 
fell 7.5 per cent. 

Of 313 commodities quoted in Dun's Review of Marcli 8, 1919, 140 
were quoted at prices lower than they were a year previous, and 126 
were quoted higher than they were the year previous. The index 
figures indicate a reduction in the price level from March 1, 1918, to 
March 1, 1919, of 4.8 per cent. The commodities which were quoted 
at prices lower than last year's prices consisted of certain foodstuffs, 
drugs and chemicals, wool, woolen and cotton textiles, metals, and 
oils. With the exception of steel products, no building materials 
were quoted at prices lower than last year's prices. Of the commodi- 
ties which were higher in price than they were at the same time last 
year, the principal ones were certain foodstuffs, lumber and other 
building materials, drugs and chemicals, hides, naval stores, oils, 
paint, and tobacco. 

An examination of the price records of the Bureau of Labor Sta- 
tistics shows only two commodities in the list of over 200 that were 
lower in price in 1918 than they were in 1913. These two com- 
modities are onions and coffee (Rio No. 7). Both of these commodi- 
ties have increased in prices since the armistice and are now quoted 
about 50 per cent above the pre-war price. 

Of the commodities that have been included in the study of the 
price level, the most marked declines since the armistice have oc- 
curred in the case of lake copper and pig lead. In November copper 
was 69 per cent above the pre-war price. Since that time it has 
dropped down to the pre-war level. Pig lead in November was 79 
per cent above the pre-war price, and at the present time it is only 
17 per cent above it. In both cases the cessation of the war left very 
large stocks of these commodities on hand. Both are usually ex- 
ported in large amounts and there has been no export demand; con- 
sequently the very considerable declines in prices of these two com- 
modities are not surprising. 



PEICES DUEIFG THE WAK AKD THE READJUSTMENT PERIOD. 7 

In general, the course of prices since the armistice, as has been 
outlined, seems to bear out the theory that a new price level has been 
established. 

In the case of iron and steel products war orders for the entente 
allies began to figure largely during the second half of the year 1915. 
Demands for steel production were greatly increased and prices 
advanced at that time. Steel prices continued to advance through 
the year 1916, and in 1917 it developed that a very large proportion 
of the steel output of the country would be needed for war uses. 
Prices of steel, iron, and coke soared to unprecedented levels, until 
the Government found it necessary to fix the prices on these com- 
modities. The Government's fixed prices ruled the markets from 
the last quarter of 1917, until the end of 1918. 

Most steel prices, before the Govermnent assumed control, were 
over three times the pre-war figures ; some were nearly six times the 
pre-war figure. The Price-Fixing Committee brought these prices 
down very considerably. However, the Government's fixed prices 
were still very high in comparison with pre-war figures. If the 
average for the period July 1, 1913, to June 30, 1914, be taken as the 
pre-war base (100 per cent), an average of prices on finished steel 
products in force at the time of the armistice shows an index of 228. 
Since the maximum possible production of steel was desired, these 
commodities being considered as essential for war purposes, it was 
necessary to fix the prices at such a figure that the producer whose 
costs were greatest might enter the market and make a fair profit. 

The steel industry announced reductions on various items early 
this year. These reductions brought the index figure on steel prod- 
ucts down to 217. The declines, however, were not considered by the 
buying public as being sufficient to interest them. No orders re- 
sulted from these declines, and the steel interests found that further 
reductions would be necessary in order to stimulate business. 

Finally on March 20, after conference with the Industrial Board 
of the Department of Commerce, the committee representing the 
steel companies announced a new schedule of prices. The new 
schedule presented an all-round reduction of 14f per cent from No- 
vember prices. 

At the present time the index figure for finished steel products is 
195— that is to say, these products are now on the average 95 per 
cent above the figure for the period July 1, 1913, to June 30, 1914. 
Since this average was obtained by a system of weighting similar to 
that used by the Bureau of Labor Statistics, it is comparable with 
the figures of that bureau. The bureau index number for wholesale 
prices of all commodities for the month of February was 197. It is 
thus seen that the action of the conference on steel prices had the 



8 PRICES DURING THE WAR AND THE READJUSTMENT PERIOD. 

effect of bringing these products doAvn to the general level of all com- 
modities. 

At the time the new schedule on steel was amiounced, the steel 
companies stated that these prices would prevail for the rest of this 
year. It was also stated that the prices were the lowest possible com- 
patible with the present wage scale. At the present moment, owing 
to the desire of the Railroad Administration to secure lower prices 
if possible, there seems to be some doubt as to whether present steel 
prices will stand. It is hoped that this matter will be settled in the 
near future. 

There was this difference in the conditions that determined prices 
on steel, and on basic building materials. In the case of materials 
regarded as not essential, such as most of the building materials 
other than ste«l, whether the price was fixed by the Government or 
in the open market, this price was not sufficiently high to keep all 
producers in the market, simply because the maximum production 
was not required by the war-time needs of the country. In fact, con- 
struction itself, as well as production of various building materials, 
was specifically curtailed by governmental order. 

Figures of the United States Geological Survey show that actual 
production of common lime in 1918 was 20 per cent less than in 1917. 
Portland cement produced in 1918 was 23 per cent under the 1917 
figure. Lumber was reduced 19 per cent in output. Common brick 
in 1917 was 21 per cent under 1916. It has been estmiated that in 
1918 the production of common brick was less than half the 1917 
figure. 

As a consequence, the markets are understocked rather than over- 
stocked in these commodities. If any one of these commodities had 
been considered as essential as steel the Government would have 
been obliged to fix the prices on them at figures high enough to 
encourage every producer in the country to run his plant at maxi- 
mum capacity with a guarantee of a reasonable profit on his output. 
In that case the prices on these connnodities would have reached 
much higher levels than the}'^ actually did. 

Lumber as a group during the last quarter of 1918 was 73 per cent 
higher in price than in the pre-war period, July 1, 1913, to June 30, 
1914. The building-materials group, including lumber but not in- 
cluding metal products, was 84 per cent above the pre-war figure. 
This seems large, but as compared with 113 per cent increase on com- 
modities other than building materials, the increase seems justifiable. 
The farm-products group showed an increase of IIC per cent at the 
same time. 

It is interesting to compare the farm-products group with the 
lumber group. The indices show that at the beginning of the year 
a farmer could exchange a certain amount of his produce for 25 per 



PRICES DURING THE WAR AND THE READJUSTMENT PERIOD. 9 

cent more lumber than the same amount of produce would have 
brought him in the year preceding the war. 

Chart No. 3 shows graphically the rise in these various classes of 
commodities. The circles in the center represent the shrinkage of 
the pre-war dollar, expressed in terms of these groups of commodities, 
the shaded portions representing the values of the dollar in terms of 
these several price levels. Roughly speaking, by the end of 1918 the 
pre-war dollar, as expressed in terms of farm products, had shrunk 
to 46 cents; as expressed in terms of lumber, it had fallen to 58 cents; 
in terms of building materials (not including steel), it fell to 54 
cents ; and in terms of all commodities other than building materials, 
it fell to 47 cents. 

A composite index for all building materials including steel, as 
well as lumber and the rest, would show an increase of 93 per cent 
over the pre-war period for the last quarter of 1918. At the present 
time the index would be 189. 

Building material prices increased somewhat more in the East than 
in the Middle West and in the West. Since the opening of the year 
lumber has increased somewhat in price. Common brick have also 
increased in the New York market. On the whole the group of basic 
materials, not including lumber or steel, has remained practically 
stationary, declines in some items being offset by advances in others. 
From all indications the prices of building materials on the whole 
do not seem to be subject to any declines of consequence in the future. 

An attempt has been made to estimate the increase of construction 
costs. With the cooperation of the United States Housing Corpora- 
tion, a comparison of the cost of a two-family wood-frame and stucco 
house, as between the present time and 1915, has been made, prices 
prevailing in the neighborhood of New York being used. This esti- 
mate showed an increase in cost of construction for this type of 
building of 48 per cent. 

An architect in St. Paul, Minn., has furnished the cost per cubic 
yard of hospital buildings of reinforced concrete construction for 
each year from 1911 to 1918. These figures were based on actual 
buildings, all of the same type, all b}^ the same architect and the same 
contractor. They show that the 1918 building cost was 80 per cent 
more than the 1915 building. The cost to-day should be appreciably 
less than this, with reduced prices on reinforcing material and in- 
creased efficiency of labor. 

The Engineering NcAvs-Record of February 20 published an esti- 
mate on a steel-frame office building in the cit}^ of Chicago, showing 
an increase in cost of 87 per cent over 1915. This Avould be reduced 
somewhat now as a consequence of the reduced cost of structural steel. 

The subject of increased construction costs is very important, and 
the Division of Public Works and Construction Development is now. 



10 PKICES DUEIFG THE WAB AND THE EEADJUSTMEKT PERIOD. 

investigating this pliase of the problem with the hope of having 
more complete data on it in the near future. 

In conclusion, after a somewhat extended study of prices, it is the 
opinion of the Division of Public Works and Construction Develop- 
ment that a new price level has been established by economic condi- 
tions attending the world war; and that economic forces appear to 
have already acted to stabilize prices at a level below which they are 
not likely to fall by any appreciable amount in the near future. It 
is believed that the growing confidence in the future of business in 
this country, evidence of which is seen on all sides, is well justified 
by the facts that have been learned through the study of the price 
situation. Evidence of the stability of business to-day is the fact 
that during a five months' period of stagnation the number of busi- 
ness failures has been unusually low. 

At the present time there is less concern over high prices than there 
is with regard to the stability of prices. It appears that the wisest 
business men are those who decide now to go ahead with the con- 
struction of buildings and the production of goods ; the need for both 
forms of activity are more imperative now than ever before. 

Thos. S. Holden. 



/Juthor/fies 
US -Bureau of Labor Statbtics 
Canddd-Cdnadi^n Labor Dept. 
United Kingdom-London Economisf- 
Frdnce-StdttstlQue Cih^rale 



FRANCE 

MAY '1 81 



UNITED 
US CANADA AUG. 18 

SEPT18 NO^-''S — 



11913 LEVEL 



11913 LEVEL 



1913 LEVEL 



i9r3LEva 



MAXIMUM RISE OF THE 

PRICE LEVEL IN THE U.S. 

AND OTHER COUNTRIES 

U.S. DEPARTMENT OF LABOR 

INFORMATION AND EDUCATION SERVICE 

DIVISION OF PUBLIC WORKS AND CONSTRUCTION DEVELOPMENTS 

Chart No^ 1 



FIG.l 

No. of Declines, No. of /Advances 



FIG. 2 




OCT 5. 1918 
OCT 12 
OCT 19 
OCT 26 
NOV. 2 
NOV. 9 

NOV. 16' 

NOV 23 
NOV. 30 

DEC. 7 

- -DEC. 14 

DEC.2I 
DEC. 2 8 
JAN.4.I9I9 
JAN. II . 
JAN 18 
JAN. 25 
FEB. I 
FEB.8 
FEB. 15 
FEB. 22 
MAR. I 
MAR. 8 
MAR 15 
MAR. 22 
MAR. 29 
APR 5 



.^ O "S, i.^ 



THE FALL OF THE PRICE LEVEL 

DURING THE PERIOD OF 

READJUSTMENT 

FIG.l Number of Declines dnd/^ijvdnces m Weeh/y Quotations 
F IG. 2 -Dun's Index Number for 3J3 Commodities 

U.S. DEPARTMENT OF LABOR 

INFORMATION AND EDUCATION SERVICE 

DIVISION OF PUBLIC WORKS AND CONSTRUCTION DEVELOPMENTS 



Chart No. 2 



FARM PROD 



OTHER COM. 

II37C 
FIGURES FDR UST 
QUARTER OF ISIS 



LUMBER 

735« 



BLOG.MAT 

IHOT INCLUDING STEElJg^ <f, 



€C 



FARMPHOa 



Lumber. 



Bldcmt. other Cm. 'k 
Shrinkace of m Dollar. 




COMPARISON OF RISE IN 

BUILDING MATERIALS AND 

OTHER COMMODITIES 

U.S. DEPARTMENT OF LABDR 

INFORMATION AND EDUCATION SERVICE 

DIVISION OF-PUBLIC WORKS AND CONSTRUCTION DEVELOPMENTS 

Chart No. 3 



IPPI Gaylord Bros. 
liijjj. 5 MaKers 

li'lK .^ Syracuse N. Y. 



PAT. IAN. 21, 1908 



LIBRARY OF CONGRESS 

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